In the News: 2003

Going For Brokers

Bangkok Post
29 September 2003

Records are made to be broken, as was made clear when the daily trading turnover of the Stock Exchange of Thailand reached 59.5 billion baht on Sept 18, the highest in the bourse's 28-year history. It obliterated the earlier mark of 41.5 billion baht, set only six days earlier.

For this reason, it comes as no surprise that the prices of securities sector stocks have increased as their popularity soars, National Securities analyst Ratchanok Dandamrongrak says in a research paper on nine listed securities firms.

The nine are Trinity Wathana (TNITY), Seamico Securities (ZIMCO), Asset Plus (ASSET), ABN Amro Asia (AST), KGI Securities (KGI), Capital Nomura Securities (CNS), United Securities (US), Adkinson (ASL) and Sicco Securities (SSEC).

As of Sept 12, when market turnover hit 41.15 billion baht, the average closing price of the nine firms was 144% higher than the average for the first five months of the year, Ms Ratchanok wrote.

With market volume soaring, the market share of some brokerages has increased markedly, notably ASSET from 2.13% early this year to 3.55% today and TNITY from 1.45% to 2.68%. Aside from this, the two have performed spectacularly in investment banking with ASSET the long-standing champion in the field and Trinity a new star, she said.

Excluding major issues in the pipeline from Thai Airways International and Krung Thai Bank, it is expected that this year there will 25 initial public offerings (IPOs) and next year there will be another 60 including Beer Thai, the maker of Chang Beer, which is expected to be the largest issue ever by a local private corporation. Aside from this, another three to four state enterprises will list, Ms Ratchanok said.

National Securities recommends that investors stay overweight in this sector with all of its stocks a good investment but especially TNITY, ZMICO and ASSET. It believes the lowest return for securities stocks would be 23%, from SSEC, and the highest 135% from TNITY. Aside from this, investors would also get dividends yielding around 5%.

During the first five months of this year, the SET's average daily trading volume was only 6.79 billion baht and the share prices of companies in the securities sector moved in a narrow range. However, from June onward the market turned bullish after negative factors that cloaked the market dissipated, including the US-Iraq war and the Sars outbreak.

At the same time positive news about the Thai economy boosted investor confidence, energising the bourse further. Average daily trading volume reached 26.3 billion baht from June 2 to Sept 11. Then came the short-lived record of 41.15 billion baht, eclipsed by the Sept 18 figure of 59.5 billion. The previous high for the SET, which was established in 1975, was on Jan 5, 1994 when turnover reached 40.01 billion baht and the SET Index was near its all-time peak of 1,700.

It should come as no surprise that the share prices of securities companies track market trade, since commissions are their main source of revenue, at 70-80% of the total.

Securities sector share prices moved up by an average of 55.7% when comparing performance in the first five months with the period between June 2 and Sept 11. But if the comparison is made to the closing price on Sept 12, then the increase shown is 144% with KGI being the most spectacular with a gain of 254%, followed by TNITY (204%), ASSET (189%) and ZMICO (164%). These four stocks outperformed the sector while the prices of the remaining five stocks of this sector increased by a lesser degree, or in other words they underperformed, including US (+42%), SSEC (+91.9%), CNS ( +92.2%), ASL (+110%) and AST (+123%), Ms Ratchanok said.

National Securities expects a bull market this year and a super bull market next year. Ms Ratchanok cited the following six reasons:

- 1. Low interest rates spur investment and the transfer of investment funds from the bond market to the stock market because of better returns.

- 2. Prospects of economic expansion from the recovery of consumer spending, investment, government spending and exports with the latter reaching the highest level in five years this past August. Prime Minister Thaksin Shinawatra expects the economy to grow 6% this year and 8% next year.

- 3. The sovereign credit rating by Moody's and S&P could improve.

- 4. Establishment of the Vayupak Fund is expected to add at least 100 billion baht to the market.

- 5. Establishment of the SET50 fund by the bourse, mutual fund companies and securities companies to invest in blue-chip stocks will help. Mutual fund companies are also expected to launch several more funds.

- 6. Products in the market will increase with 60 more companies getting ready to enter the bourse.

Aside from these six factors, previous statistics also show a direct link between market capitalisation and trading volume in a ratio of 1:1.

For example, in 2001 and 2002 when the economy started recovering, SET trading volume was 1.04 and 1.10 times market cap respectively. But when tarde heated up, as in the second half of this year, the ratio reached 1.24 times.

Looking ahead to next year, Ms Ratchanok applied the 1:1 ratio and worked out that average daily trading turnover would be 20 billion baht, against which one could gauge the performance of the nine securities stocks under review.

A source at one brokerage said that daily SET turnover of eight billion baht was the point at which his firm began to make profits.

However, should the average increase to the current level, which is 1.24 times, it would mean the trading volume would be as high as 25 billion baht a day.